Multi-Homing Revisited: Level of Adoption and Competitive Strategies

Abstract

Aided by the increasing ease of use, lower adoption cost, and higher network benefits, consumers are demonstrating a strong propensity to concurrently use competing firms’ products or services. Depending on their relative preference for a firm, such “multi-homing” consumers may adopt each firm partially and therefore contribute to the network benefits of no firm fully, as would be the case with single-homing. Consumers’ level of adoption of competing products is a key feature of multi-homing, which, while observed widely in practice, has not previously been studied in the literature. Through a series of analytical models, we demonstrate the important role of this construct in the pricing and capability-related decisions of competing firms. Our results provide several new insights, which suggest that as multi-homing (M) settings become common across industries, technology strategists and managers should exercise caution against simply extrapolating insights from single-homing (S) settings, where consumers adopt only one firm, or from M settings, where the level of adoption is not accounted for. Specifically, in markets where competing products are not well differentiated, contrary to intuition, we find that under price competition, a firm’s profit can be hurt by high levels of adoption by multi-homing consumers; further, in markets where prices are inflexible, a firm with a higher level of adoption can succeed even with a lower level of capability innovation relative to that of an S setting. In contrast to single-homing settings, we show that firms in M settings need to mitigate uncertainty regarding network benefits if the level of adoption is low. Finally, we explore the role of adoption level in two-sided markets and demonstrate that if one side does not have a strong preference for a platform, then, contrary to prevailing wisdom, the latter need not strongly subsidize the other side of the market.